A stock has an expected rate of return of 8.3% and a standard deviation of 6.4%. Which one of the following best describes the probability that this stock will lose 11% or more in any one given year?
A) less than 0.5%
B) less than 1.0%
C) less than 1.5%
D) less than 2.5%
E) less than 5%

Question

Quizplus · Accepted Answer

The probability of losing 11% or more can be calculated using the normal distribution. The z-score for -11% is (-11% - 8.3%) / 6.4% = -3.03125. A z-score of -3.03125 corresponds to a probability of less than 0.5% in the standard normal distribution.

A Stock Has an Expected Rate of Return of 8